Buying a Home: Prepare by Getting your Finances in Order

Buying a Home: Prepare by Getting your Finances in Order

For those considering buying a home, the current real estate market presents some unique opportunities. One of the side effects of the economic roller coaster ride of the past few years is that home prices have gone down and more homes have gone on the market. For buyers, that means more choices and better deals. However, those same tumultuous years can also teach buyers a lesson: Make smart buying decisions and be wise with your finances.

Impulsive buying is never a good idea when it comes to a purchase as significant as a home. You need to be absolutely certain that your finances are in order, and healthy, to be able to get the best deal on your purchase.

There are a number of steps you can take to get ready to buy a home.

If you haven't already, start saving. At the same time, review your credit score and do what you can to either maintain it or work toward healthier credit. Both of these tasks will help make the home-buying process better for you.

Your credit is an important factor in determining the terms under which you can get a mortgage. Broadly speaking, the better your credit is, the better your interest rate will be. Because you'll be paying off your home for years to come, it's important to get the best rate possible.

Start by checking your credit report. You're entitled to one free check of your report, from several credit reporting agencies every year. As much as you need to check your report to find out what shape your credit is in, it's also essential to review it for inaccuracies or fraudulent activity, both of which can have a negative impact on your score.

If your credit health needs some work, take action immediately. Paying bills on time, reducing your overall debt and limiting new credit inquiries can all help to build your credit, but be patient as it can take time for your positive actions to impact your credit score. Nevertheless, the sooner you make the effort, the sooner you'll see results.

Finally, remember to be prudent when deciding how much you can afford for your monthly mortgage payment. While it may be tempting to buy a pricier house, the stress of struggling to make payments could diminish your enjoyment of your new home and even put you at financial risk. One rule of thumb is that most borrowers can afford a home loan that runs about two and a half times their annual salary.

Buying a home is a complex process, but is ultimately very rewarding when done right. By organizing your finances well in advance, you'll help set yourself up for success.

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